The Israel-Palestine conflict boosts investor appetite for oil

Investors reacted to the initial tensions between Israel and Palestine in the same way as in other conflicts – betting on safe-haven assets such as gold, the US dollar or Treasury bonds, to the detriment of riskier equities – by Javier de Berenguer

 
“What surprised us is that this movement was quite fast. The following day, the stock exchange was already above previous levels and bonds were recovering,” explains Javier de Berenguer, investment manager and fund selector at MAPFRE Gestión Patrimonial (MGP).

The only assets that are quoting at the same or higher levels than the day the conflict broke out are gold and oil, and it’s precisely in the latter that De Berenguer perceives the greatest risk.

Since October 7, the day of the Hamas attack on Israel, Brent crude oil (a benchmark in Europe) has gone from trading at around $85 to $91, while WTI (a benchmark in the United States) has been around $87, compared to $83 in the days before the attack.

“That’s where we see the danger, given the possibility that oil-exporting countries like Iran or others may take a more direct stance and move to limit supply,” he points out. However, De Berenguer specifies that this escalation doesn’t fall within MAPFRE Asset Management’s baseline scenario.

In the fixed income market, which has surged in recent days, MGP doesn’t believe that there is much more room for bond yields to continue rising, although there are factors that could support this, such as inflation or the imbalance between supply and demand.

This week sees the third-quarter earnings season kick off, which De Berenguer says will still reflect consumer-driven resistance. “The market is now focusing its attention on 2024 guidance and on the earnings outlook for next year,” he said.

China grew 1.3% in the third quarter

China surprised investors this week by announcing growth of 1.3% for the third quarter, giving a cumulative rate of 5.2% for the first nine months of the year. De Berenguer noted that this data “is good news for the market,” and especially for Europe. “China has completely changed its growth model – with the debt it has amassed, it’s not possible to grow as it did before,” he explains.

The objective of the Chinese Government is to reduce household and corporate debt levels, and De Berenguer doesn’t rule out the country reaching its 5% growth target this year. “More than anything, China wants to avoid going through what Spain did in 2008,” said De Berenguer.

Javier de Berenguer is  investment manager and fund selector at MAPFRE Gestión Patrimonial (MGP